Around one million savers with more than £85,000 in one bank or building society could be at risk following changes to the Financial Services Compensation Scheme (FSCS).
On 1 January 2016 the FSCS, which protects savers’ money if their bank or building society goes bust, changed its compensation limit to bring it in line with the limit set by the rest of Europe.
Under the new rules, the compensation limit has been slashed from £85,000 to £75,000 for single accounts, and £170,000 to £150,000 for joint accounts.
The limit is set every five years in line with the European Union Deposit Guarantee Schemes Directive, which was set at €100,000 last year.
However, because the euro has tumbled in value during the last five years the €100,000 cut-off has gone from being worth £85,000 to nearer £72,000.
Savers with money in a fixed-rate bond or ISA have already missed the opportunity to avoid early exit penalties which can be as high as a year’s interest, but are still advised to move any money above the £75,000 limit to another account operated by an alternative financial institution.
Savers have been advised to pick a new provider and ask them to arrange the transfer for them to prevent them losing tax perks on the money. The change won’t affect the amount of money that savers can save and funds left in the original account will carry on earning the same rate of return.
The new limit will protect more than 95 per cent of people in the UK; with around 93 per cent of consumers having £50,000 or less in savings.
Any money held with National Savings & Investments will continue to be 100 per cent protected by the Government.
Link: Changes to FSCS